Oil prices posted their largest weekly percentage gain in almost four years as traders looked past the current world-wide glut of crude to focus on signals of future production cuts.

Some market participants said oil prices, which have fallen 52% in the past seven months, could be bottoming out as producers have reacted to the low prices by cutting expenditures and reducing drilling activity. But many analysts caution that the global oil market still is oversupplied and there are few signs of a major uptick in demand, so prices could slip yet again.

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Men work at an oil site in the Bakken formation in North Dakota in late 2013.
Photo:
Minneapolis Star Tribune/Zuma Press

The market was volatile this past week, posting a one-month high Tuesday before falling Wednesday and then regaining those losses by week’s end.

U.S. oil for March delivery settled up $1.21, or 2.4%, Friday at $51.69 a barrel on the New York Mercantile Exchange. Prices gained 7.2% for the week, the largest weekly percentage gain since February 2011.

Brent, the global benchmark, rose $1.23, or 2.2%, to $57.80 a barrel on ICE Futures Europe. Prices rose 9.1% for the week.

Prices spiked briefly at midday after oil-field-services company
Baker Hughes Inc.
’s data showed the number of rigs drilling for oil in the U.S. fell by 83 in the latest week, the ninth weekly loss in a row, to the lowest level since December 2011.

The continued drop in the rig count indicates that producers are pulling back on oil exploration and new drilling. This past week’s data showed a large drop in horizontal rigs, which are used in shale-oil drilling. In addition, the largest drop in oil rigs was in the Permian Basin, one of the three key regions for shale-oil production.

“The shale industry in the U.S. acts as an accordion that will expand and contract relatively quickly,” said
David Zusman,
chief investment officer at Talara Capital Management. “The leading indicators, including drilling permits, rig count and overall capital spending, are already pointing to a brighter 2016.”

However, analysts have cautioned that the rig count may not directly correlate with future output because producers are cutting less-productive rigs while focusing on their best assets.

U.S. oil production remains near multidecade highs, and crude-oil supplies stood at their highest level in about 80 years in the week ended Jan. 30, according to the U.S. Energy Information Administration.

“There doesn’t seem to be any indication that U.S. production is faltering,” said
Harry Tchilinguirian,
global head of commodity markets strategy at
BNP Paribas SA
. “A decline in the rig count does not necessarily mean a decline in production.”

U.S. oil production is near multidecade highs. Above, a Texas oil well.
Photo:
Getty Images

Prices pared their gains later in the session as the dollar strengthened following better-than-expected U.S. employment data. A stronger dollar can weigh on oil prices by making the dollar-denominated commodity more expensive to buyers using foreign currencies.

Late Thursday, Saudi Arabia increased its oil prices for U.S. buyers and reduced its prices for Asian buyers in what some interpreted as a signal that the kingdom will keep oil flowing to maintain market share at the expense of U.S. shale-oil producers. Saudi Arabia is the biggest producer in the Organization of the Petroleum Exporting Countries, which has declined to cut its output quota despite the rout in prices in a bid to defend its market position.

The recent volatility in oil prices left some market observers baffled about where crude is headed.

“The message is that the ground is very slippery underfoot,” said
David Hufton
of London oil brokerage PVM. “Next week, we could find Brent challenging support at $50 a barrel or resistance at $60.”

Meanwhile, gasoline futures rose 3.43 cents, or 2.2%, Friday to $1.5591 a gallon. They gained 5.4% for the week.